We have found that the loss of glucagon receptors and response in a cloned line of transformed MDCK cells (a dog kidney line transformed by Harvey's murine sarcoma virus) can be reversed by butyrate, a differentiation inducer, or by prostaglandin E1 when cells were cultured in a chemically defined medium. A phosphodiesterase inhibitor, which allows accumulation of intracellular cyclic AMP, mimics the ability of prostaglandin E1 in inducing glucagon sensitivity. When compared to normal MDCK cells, the ability to produce prostaglandins was markedly diminished in the transformed line. Based on these observations, we proposed that the loss of glucagon receptors resulting from viral transformation is a consequence of the reduced production of prostaglandins in transformed cells.